Morning Dairy Comments, 02/16/2016

Tuesday, February 16, 2016


General Market News

· ***GDT auction this morning***

· Saudi Arabia, Russia, Qatar and Venezuela agree to freeze oil production

· Crude oil was up over 4% overnight on the news but is now near unchanged

· Dow futures rallied nearly 300 points overnight as market says ‘risk-on’ with hopes of ECB an Japan stimulus packages, up only 170 this morning

· USD up over 600 points overnight

· Gold drops 2.5% as market moves away from safe haven

· CWT announces export assistance on 3.9 million pounds of cheese and butter export sales to be delivered from February through August

 

 

Class III, Cheese & Dry Whey

Volatility took a hiatus from bearing down on Class III, cheese and dry whey over the past week, with sessions comprised mostly of narrow ranges and low volume as the fatigue factor set in while the industry looked on at the meltdown in macro markets. All things said and done, dairy futures performed rather well in light of stocks being leveled along with other sectors of “risk”.

With spot prices steadily migrating back northbound towards the $1.50 mark, the futures trade has firmed a bit over the past week as both the Q2 pack average and the 2nd half strip have pulled back to nearby moving averages and were clinging to them as of Friday’s close. So are we bottoming is the question that has been thrown around of late? The answer is yes and no. I realize that’s a bit vague so let’s drill down on what that means. Short term, it’s still bearish. Milk production, both domestically and internationally, particularly the EU, remains strong enough to eclipse demand, which will likely keep the lid on upside price action and continue to bear down on prices. Domestically, we’ve yet to reach levels where production is crimped and cull rates start to jump, but when we do see that dynamic start to materialize, then some consideration should be made as to the longer term effects and a possible bottom. The trade has been thirsting for fresh news to move on and it could get it as early as this morning, with a GDT auction that is expected to come in lower and milk production numbers, which is slated for Friday afternoon.

In the meantime, there remains a lot of wildcards out there from a macro perspective from crude oil, the USD, and stocks, to Fed policy and central bank intervention. This sparked panic for much of last week across most markets, dairy and grains being the exception. That said, if a macro meltdown is on the horizon then very few markets will be spared, save gold for example, so we’ll have to keep a firm finger on that pulse as always. Below are some highlights that have transpired over the past week.

For the week ending February 6th, the National Dairy Products Sales Report showed blocks holding steady at $1.50 on decreased sales volume of 11,695,965 million pounds while barrels slid to 1.51 9,478,002 million pounds. The dry whey price posted a gain to 0.2479 on decreased sales volume of 7,168,735 million pounds.

Block cheese prices were up 2 cents on the week, to close at $1.4900/lb., in a market that saw 13 loads change hands. Barrel cheese ended the week 1.50 cents higher at $1.4800/lb., with no loads traded.

Slaughter for the week ending January 30 was up 0.6% from a year ago, at 65,100 head. Year to date, slaughter is 1.2% lower than 2015 levels, with 304,800 head slaughtered.

Dairy Market News reports the cheddar cheese price for January 25 – February 5 in Oceania at $1.4175/lb., up 7.37 cents from the previous period.

The midpoint Central dry whey mostly price was up 0.50 cents from the previous week, at 24.cents but 24 cents lower than the comparable period in 2015, Dairy Market News reports. The Central dry whey mostly price as reported by Dairy Market News for January averaged 22.51 cents, 30.54 cents lower than 2015’s price but up 1.23 cents from last month. The midpoint Western dry whey mostly price was 25 cents per pound, unchanged from the previous week. The price is 20 cents lower than the comparable period in 2015. January’s Western dry whey mostly price reported by Dairy Market News averaged 24.26 cents per pound, 22.89 cents below 2015 but 0.36 cents higher than last month. For Central and West 34% whey protein concentrate, the midpoint of the mostly price was reported at 57 cents per pound, unchanged from the previous week, according to Dairy Market News. The Central and West 34% whey protein concentrate averaged 54.45 cents for January, 62.82 cents below 2015 but up 54.45 cents from last month. During the month, the whey protein concentrate price was up 3 cents at 56 cents per pound.

Dairy Market News reports the sweet whey powder price for January 25 – February 5 in Western and Eastern Europe at 27.78 cents per pound, unchanged from the previous period.

We look for Class III, cheese and whey to open mixed

Spot Session Results

Type

Trades

Settlement

Change

Bid

Offer

CHEESE

BLOCKS

0

$1.4900

UNCH

3

0

 

BARRELS

0

$1.4800

UNCH

0

0

NFDM

GRADE A

7

$0.7375

DOWN 2 ¼

1

0

BUTTER

GRADE AA

6

$2.1100

DOWN 2

0

0

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Class IV, Nonfat, and Butter Futures

Both butter and NFDM saw some pretty explosive trade to wrap up the week as both fell under pressure courtesy of lower spot calls. By Friday’s closing bell, NFDM futures were in the red through 2016 on moderate volume, with 1-2 cent pullbacks commonplace through mid-2016 as the spot price traded a respectable 7 loads back down to $0.7350. With the spot price running into headwinds after reaching its highest level since late December at $0.76, the trade is acknowledging that price action will likely continue to be range bound with limited upside. With EU SMP continuing to find its way into the intervention program, it casts a bearish shadow on price recovery. We’ll need to see European milk production tap the brakes or find a home for product in order to absorb supply.   

Sellers also drilled down on butter after 6 spot loads traded down to $2.11, with limit down moves seen in July and August contracts and the balance of the board soaked in red on heavy volume. We'd expect a at least a test of the $2.10 level to start the week from a spot perspective with a possible look at $2.00 coming on the heels if that area is breached. Taking a closer look at technical levels, the Q2 strip has broken initial support levels at its 10 and 20 day moving averages (yellow and blue lines on the chart below). Another round of pressure will likely see a test of the 50 day moving average near $2.11 (red line) and further psychological support at $2.00.

April-June Butter~Daily

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The butter price settled the week at $2.1100/lb., down 6 cents from last Friday. The price is 39 cents higher than in 2015. January’s monthly average butter price at the CME was $2.1214/lb. The price is 55 cents per pound above 2015, but 21.04 cents lower than last month. During the month, the butter price gained 14 cents to $2.2200/lb. Activity, at 54 loads, was mixed: down 16 loads from last month but 28 loads more than in 2015. Traded prices ranged between $2.0300/lb. and $2.2500/lb.

Dairy Market News reports that the 82% butter price for January 25 – February 5 in Western and Eastern Europe was $1.3495/lb., unchanged from the previous period. Oceania’s price was $1.3835/lb., up 1.14 cents from the previous period.

Dairy Market News reports the midpoint Western nonfat dry milk (NFDM) mostly price at 72.75 cents per pound, unchanged the previous week. The California Department of Food and Agriculture (CDFA) reports the weighted average price received for NFDM sold by California processors was 77.97 cents per pound for the week ending February 5, down 1.38 cents from the previous week. The Grade A NFDM price was down 1.25 cents at 73.75 cents per pound, with 10 trades this week. The Grade A price is 41.25 cents below last year’s price. January’s monthly average Grade A price at the CME was 73.12 cents per pound. The price is $0.2586/lb. below 2015 and 3.73 cents lower than last month. The Grade A price ended the month down 3.75 cents at 71.75 cents per pound. Trading totaled 65 loads during the month, up 9 loads from 2015 and 20 loads higher than last month. Traded prices ranged between $0.7000/lb. and $0.7575/lb.

Dairy Market News reports that the skim milk powder (SMP) price for January 25 – February 5 in Western and Eastern Europe was $0.7938/lb., unchanged from the previous period. The price in Oceania was 82.21 cents, unchanged from the previous period. For the week ending February 6th, the National Dairy Products Sales Report showed a higher butter price of 2.17 on increased sales volume of 5,002,906 million pounds, while NFDM came in steady at 0.77, on sharply higher sales volume of 17,448,361 million pounds.

We look for the butter to open mixed, NFDM was lower overnight in anticipation of a lower GDT and class IV should open lower as well.

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Grains

Grain markets continue to struggle with direction as there’s just no real story to drive prices in either direction. Traders were hoping USDA would deliver but there wasn’t much to write home about on that front either, as stocks for both corn and beans were raised on weaker demand outlook and more than adequate global supplies and increased competition for market share from our neighbors to the south. Barring a weather event this year, we’d expect upside potential to remain limited and prices under pressure.

At current, traders don’t want to push prices too much lower as the weather picture remains an outlier, but they don’t feel the need to take ownership at these levels either. For the week, March corn shed 7 cents and settled at $3.58 3/4 , while beans were able to post small gains of about a nickel on the back of production issues in the palm oil market as a result of fallout from El Nino, which has worked to support soybean oil. 

Grain markets were higher overnight amid the ‘risk-on’ stance being taken by the general markets. We look for prices to be 2 to 6 cents higher across the board today. 

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